National Income

National Income

the total value of newly created material production, or the corresponding portion of gross national product, computed annually. If all material expenditures incurred during the year are subtracted from gross national product—itself the total yield of material production during a given year—what remains is the newly created value for the year, that is, national income. In physical terms, annual national income is the sum of all consumer goods and means of production used for the extending of production that have been newly produced during the year.

As a general indicator of the level of development of society’s productive forces, national income reflects both society’s economic structure and the tangible results of the process of expanded reproduction for a given period of time. The economic nature of national income—including its sources, principles of distribution, and actual use—is determined by the dominant social mode of production. The essentials of national income can be correctly understood solely on the basis of a scientific theory of social reproduction. Such a theory was formulated by the founders of Marxism-Leninism.

Before K. Marx, economic thought was unable to give a scientific answer to the question of national income; this remained the case so long as national income was viewed separately from social reproduction. The 17th-century English economist W. Petty was the first to calculate national income. Later the Physiocrats made their contribution to the theory of national income. Foremost among them was F. Quesnay, who developed his famous tableau économique (1758) in what was the first attempt to demonstrate the process of social production. But the Physiocrats erroneously considered agriculture to be the only productive sector and thus precluded their solving the overall problem of reproduction. The classical capitalist political economists A. Smith and D. Ricardo essentially took a step backward, away from an understanding of the process of reproduction, by mistakenly considering that the value of all social product could be reduced to incomes and ignoring the value embodied in the means of production that is transferred to the product. This conception, known in political economy as Smith’s dogma, did not account for the difference between production and personal consumption.

Marx was the first in the history of economic thought to offer scientific solutions to the problem of national income. These were later creatively elaborated by V. I. Lenin. Lenin wrote: “The problem of ’national income’ and of ’national consumption,’ which is absolutely insoluble when examined independently, and has engendered nothing but scholastic speculations, definitions, and classifications, proves to be solved in its entirety when the process of the production of the total social capital has been analyzed. Furthermore, it ceases to exist as a separate problem when the relation of national consumption to the national product and the realization of each separate part of this product have been ascertained” (Poln. sobr. soch., 5th ed., vol. 3, p.53).

Bourgeois economists view the movement of national income in isolation from social reproduction, as though it were somehow independent of production conditions. They try to ignore the exploitative essence of the capitalist social system, deny the fact of private acquisition, and prove that labor and capital have common interests. This has given rise to the theory of improving capitalist society and transforming it into a welfare state. Capitalist theories of national income are based on crude claims that capital itself generates profit, land generates rent, and workers are paid in full for their labor. Thus each type of economic activity supposedly generates income in equal measure, while the recipient and the creator of income are said to be always identical. Accordingly, full national income is calculated by adding all incomes on a national scale. Therefore capitalist economists include among the economic sectors that create national income not only the branches of material production but also the entire nonproduction sphere. The double counting inherent in this methodology leads to an artificial 20–30 percent exaggeration of national income.

National income is created through labor carried out in the sphere of material production. Such service sectors as education, public health, state administration, and defense belong to the nonproduction sphere and have no direct bearing on the creation of national income. The resources they need are provided by redistribution of national income, primarily through the state budget. Workers in the nonproduction sphere who are employed in socially necessary and useful labor but who do not take part directly in the creation of national income are nevertherless promoting the process indirectly.

Under socialism, social wealth is converted for the first time in history into real wealth for all members of society. Here national income embodies socialist production relationships. It is created through unexploited labor by workers in the sphere of material production and is allocated accordingly to serve the interests of the entire society. National income becomes the sole source for satisfying the growing material and nonmaterial needs of the people and for constantly expanding socialist production. The national income created in a year is actually the economic effect that the USSR derives from the socialist mode of production. The greater national income is, the more opportunity society will have to improve public well-being and increase the growth rate of socialist production. Growth in production efficiency, labor productivity, and the volume and quality of output, along with economical use of material resources, all promote growth in the actual volume of national income.

National income in the socialist countries is growing more rapidly than that of the developed capitalist countries. Thus, if national income for 1950 is given as 100 percent, the national income of the USSR in 1972 was 580 percent, while that of the United States was 214 percent, of Great Britain 169 percent, of West Germany 352 percent, and of France 309 percent. Average annual growth rates for national income over the years 1951–72 were 8.3 percent for the USSR, 3.5 percent for the United States, 2.4 percent for Great Britain, 5.9 percent for West Germany, and 5.25 percent for France. The aggregate growth rate of national income for the developed capitalist countries during 1951–73 was 4.6 percent, while for the members of the Council of Mutual Economic Assistance (COMECON) it was 7.9 percent. The national income of the socialist countries that are members of COMECON will continue to grow at a high rate in the future according to plans that have been adopted. National income per capita in the USSR has surpassed that of many European capitalist countries but still trails the most advanced. However, the gap is decreasing yearly.

Profound qualitative changes are taking place in the Soviet national economy on the basis of scientific and technical progress; this means that growth in labor productivity, through which four-fifths of all growth in national income is gained, is becoming increasingly important for increasing national income. Reducing material consumption of production and conserving raw and processed materials constitute enormous reserves in the effort to increase production efficiency in industry. Reducing material consumption of production in the USSR by just 1 percent would be equivalent to additional growth in national income of more than 4 billion rubles.

Under capitalism, a significant part of national income goes for parasitic consumption by the class of capitalists and their accomplices. In the socialist countries, about three-fourths of national income goes to the consumption fund, and each participant in production receives a commensurate share of the national income. Parasitic consumption of national income is impossible under socialism. But national income cannot be used entirely for personal consumption. If it were, socialist society would lack the means for development of the national economy, for necessary accumulation and expanded production. Therefore, part of national income is used as a savings, or accumulation, fund. This fund represents about one-quarter of national income.

During the ninth five-year plan in the USSR (1971–75), a major economic turning point has been achieved in the effort to raise the popular standard of living. This proceeds from the goals of communist construction and the increasing economic potential of the country. At the same time, an increasing standard of living is a most important economic prerequisite for further growth in the national economy and development of socialist production relationships. An approach toward solving the problem of significantly raising the material and cultural standard of living of the Soviet people is expressed in the changing proportion of distribution of national income between the consumption fund and the accumulation fund in favor of the consumption fund. Whereas 73 percent of the increase in national income was used for consumption during the eighth five-year plan (1966–70), in 1971–72 the figure was more than 80 percent. The material well-being of the Soviet people is growing through increased wages to production and office workers, higher incomes for kolkhoz peasants, gradual reduction and abolition of taxes on wages, and various benefits and privileges drawn from public consumption funds.

In the socialist countries, accumulation is used for development of the economy and expansion of the material base of public well-being. The actual scale of socialist accumulation is determined according to the volume of capital investment and capital construction, that is, with due regard for increase of fixed and circulating funds, and reserves and the value of production currently in progress.

Growth of national income in and of itself does not constitute an index of growth in public well-being. The well-being of different classes and groups among the population, the amount of their respective annual incomes, and their relative share of the country’s national income depend not only on the size and growth rate of national income but also on the principle by which such income is distributed and the uses to which it is put. In the United States and Great Britain, for example, working people constitute nine-tenths of the entire population but receive less than 40 percent of national income. Under socialism, the entire national income is the property of all the people.

In determining what share of national income in the USSR constitutes the personal income of working people, the social consumption funds that are established by individual enterprises and through state budget expenditures must be considered in addition to wages. These funds grow larger each year. Along with this, a certain share of national income is allocated to the country’s defense needs. Marx pointed out that expenditures for war “in the direct economic sense are tantamount to a nation’s throwing part of its capital into the ocean” (Arkhiv Marksa i Engel’sa, vol. 4, 1935, p. 29). The Soviet state consistently pursues a policy of peace. The additional resources thus freed can be used for constructive purposes.

Under socialism there is no antagonistic contradiction between accumulation and consumption; growth in the overall accumulation fund is a condition for growth in public consumption. This means that under socialism, unlike capitalism, accumulation becomes a condition for raising the standard of living of the working people. The state budget becomes the essential instrument of distribution and redistribution of national income; more than half of the national income of the USSR is redistributed through the state budget.

In sum, further growth in national income and a corresponding increase in the material resources of the USSR are essential conditions for creating the material and technical base of communism.

National income is calculated by two methods: the production method and the distribution, or personal, method.

The production method is the primary method of calculating the national income of the USSR. According to this, the gross output of each sector of material production must first be determined and broken down according to form of ownership. Then the value of all material expenditures incurred during the production process is calculated. National income, or net output, is then derived by subtracting material expenditures from gross output. The share of each sector in the creation of national income is determined by comparing the value of its net output with total national income. By making such calculations for every sector of material production, a general picture of the sectorial structure of the country’s national income is obtained.

The value of gross annual output is made up of value created earlier and newly created value. It is therefore inevitable that when totaling gross output of individual enterprises, certain outputs will be counted more than once. For example, a machine-building enterprise has manufactured a machine whose value includes the value of the metal and preassembled components used. The value of the machine produced thus includes value created at other enterprises. But when determining national income (or net output, when applied to an individual enterprise), all double counting of material production expenditures, which in any case represent embodied past labor, must be eliminated. Calculations are made according to the formula

Go − No = Em or Go − Em = No

Where Go is gross output, No is net output, and Em is material expenditures.

According to the second, or distribution, method, the primary income of all persons employed in material production and participating directly in the creation of national income is added to the primary income of all socialist enterprises to obtain national income.

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